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THE BLACK SWAN EFFECT:
THE BLACK SWAN EFFECT
THE BLACK SWAN-Effect
Meaning:
A Black swan is an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences, causing extreme damages to the economy of one country or several countries or the world economy.
Black swan events are characterized by their extreme rarity, their severe impact, and the practice of explaining widespread failure to predict them as simple folly in hindsight.
A Black swan event, a phrase commonly used in the world of Finance, is an extremely negative event or occurrence that is impossibly difficult to predict.
In other words, black swan events are events that are unexpected and unknowable.
The term was popularized by former Wall Street trader Nassim Nicholas Taleb, who wrote about the concept in his 2001 book Fooled by Randomness.
Attributes of Black Swan Events:
Taleb outlined the three defining attributes of a black swan event:
1. An event that is unpredictable.
2. A black swan event results in severe and widespread consequences.
3. After the occurrence of a black swan event, people will rationalize the event as having been predictable (known as the hindsight bias).
Thus, a Black swan is a metaphor that discuss a hard to predict event or a surprise in many aspects of our society. It thus describes randomness and uncertainty.
The occurrence of an event is a Black Swan if you are not informed of it, thus you are a sucker.
There is also a Grey Swan which signifies an event,Known Unknowns as compared, the Black swan events, are Unknown Unknows.
Unpredictable events are actually much more common than people think and are the norm and not the exception with wide spread consequences.
It normally refers to an extremely rare negative event, which is impossible to predict. It is infinite and an unknown event.
Never deny a Black swan event, as it happens to anyone. Plan for the worst, Black swan effect, even for you, individually.
Point to note based on Black swan events, is, what is proved right today, may not hold good forever, it may prove wrong tomorrow and vice versa is also true.
The following are the several instances or Examples of Black swan events, that were least expected with huge damages to the world and the economies, that literally shook the World:
1.The spread of internet
2.9/11 Attacks-USA
3.26/11 Attacks-India
4.Beginning July 1997, a series of currency devaluations, spread in East and South East Asia. Collapse of Thai BHAT after the Govt stopped pegging local currency to US Dollar. ii. Reduced Imports iii. Fall of International stocks.
5.March 2000-The DOT. Com crash. Stock Prices rallied at unreal speed, as several Tech companies put sell orders at their peak. -DELL, ORACLE, CISCO. The NASDAQ composite index fell by 78%. Simply Panic Selling. Trillions of $ lost.
6. September 9th,2001-The World Trade Twin Towers were attacked by terrorists and Stock Markets Crashed.
7. September15th 2008-Lehman Brothers filed for bankruptcy. Total Debt $619 billion dollars. BEAR STEARNS, collapsed was bailed out and eventually sold to JP Morgan Chase.25,000 employees lost jobs. The big cash of the stock markets.
8.2009 December European Sovereign Debt crisis. Spain, Portugal, Greece and Ireland suffered huge debt to GDP.
9.March 11,2011-FAKUSHIMA Nuclear disaster-it was an energy accident initiated by the Tsunami following the Tohoku earth quake on March 11, 2011.Dow Jones Index fell by 2.4%, NIKKEI by 16% and DAX by 4%.
10.June 14th2014 OIL Crisis-over supply of Crude OIL and from 5 Million Barrels a day in 2008 to 8.5 Million barrels a day, in 2014!! prices drop from $110 to $50/.
11.August 2015, Black Monday, China devalued as a result of the slump in the crash of Oil prices, Chinese stock market fell by 8.5% in a single day, as their plan backfired.
12. On 9th June 2016 BREXIT-The Pound tumbled to a 31% low against the dollar, more than 10% fall.
<source: https://www.techinasia.com/talk/startups-worry-black-swans>
13.The Tsunami on 26thDecember 2004.
14. The 1918 Spanish flu that killed millions of people and effected 500 million people.
15.2020, CORONA VIRUS (COVID-19) the present pandemic ,is the, Black Swan e which effected every country in the world, without exception, with thousands of deaths and over 600,000 effected by the virus and which in turn has crashed Stock Markets worldwide and economies and brought the whole economic activity to a standstill with complete lock down of the countries, to prevent the Virus from spreading. It has no vaccination and most unknown and no one expected it.
Thus, in conclusion we can say that just because we have seen only white swans does not mean that there are no Black Swan. Just because a certain event has not happened does not mean that particular even will never occur. So, one and all should expect the most unexpected and be prepared for the same.
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